SAVE Act Seeks to Prohibit Non-Cost Effective Coins

A bill introduced in the House of Representatives which seeks to provide for savings, accountability, value, and efficiency in government spending would have significant and potentially unintended consequences for coins.

The bill H.R. 614 known as the SAVE Act was introduced by Rep. Patrick Murphy of Florida on January 28, 2015. A similar bill had been introduced in the 113th Congress and gained 21 cosponsors, but failed to become law.

The current bill is 60 pages in length and contains a large number of provisions intended to cut wasteful spending and improve government efficiency. Rep. Murphy stated in a press release, “The SAVE Act would cut $479 billion in government waste through common-sense provisions that have garnered bipartisan support.”

Among these provisions is Sec 208 of the bill which prohibits the non-cost effective minting and printing of coins and currency. With regards to coins, the bill would amend Section 5111 of title 31, United States Code by adding at the end the following:

(e) Prohibition on Certain Minting- Notwithstanding any other provision of this subchapter, the Secretary may not mint or issue any coin that costs more to produce than the denomination of the coin (including labor, materials, dies, use of machinery, overhead expenses, marketing, and shipping).

The United States Mint currently produces two circulating coins which cost more to produce and distribute than their respective denominations. Based on the figures from the 2013 fiscal year, the cost to produce and distribute the cent was 1.66 cents and the cost for the nickel was 8.09 cents. All other circulating coins are produced and distributed at a cost less than their respective denominations. Accordingly, if the bill were to become law, the Secretary of the Treasury would be prohibited from minting and issuing cents and nickels.

Notably, the text of the bill does not qualify the prohibition to circulating coins, which may give rise to unintended consequences for bullion and numismatic coins produced by the United States Mint.

The Mint currently produces five bullion coin series across three precious metals. These include the American Gold Eagle, American Silver Eagle, American Platinum Eagle, American Gold Buffalo, and the America the Beautiful Five Ounce Silver Bullion Coins. In all cases, the bullion coins have nominal denominations assigned which are far below the intrinsic value and market selling prices of the coins.

Unlike the circulating coins, the US Mint does not issue the bullion coins at their nominal denominations. Rather they are sold to distributors based on the market value of the precious metal content plus a mark up which covers the Mint’s costs and provides for a small profit margin. As such, the denomination of these coins has no bearing on whether or not their production is cost effective.

Similarly, the Mint produces numerous commemorative coins and other numismatic products with production costs greater than their denominations. Once again, the denominations have no correlation to the cost effectiveness of the products since their are sold at fixed prices which cover all costs and include a profit margin.

Based on the current text of the bill, the SAVE Act would seem to prohibit the production of bullion and certain numismatic coins since their production costs exceed their denominations. Coin Update raised these issues when a similar bill had been introduced in the 113th Congress. Ultimately, the previous bill did not become law, but the reintroduced the bill contains the same troubling provision.

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Comments

The concerns about possible prohibitions of bullion and commemorative coins seems valid at first glance, but actually all that would be necessary to fix the problem would be to increase the nominal values of these coins to amounts higher than the materials and production costs. It has seemed rather ridiculous for some time to put a 25¢ denomination on a five-ounce pure silver coin. To do this the legislation should include language authorizing the Secretary of the Treasury to change the nominal values of bullion and commemorative coinage to some minimum above the costs of materials and production at his discretion. Actually, if the same authority were extended to circulating coins those problems would vanish, too. Oh, I know there would be problems with implementation – especially with regard to changing the nominal values of circulating coins, but those could be overcome if the will is there to do so.

This is what happens when politicians do not have a full grasp of history.
Our coinage (silver and gold) contained the amount of the respective precious metal to make that particular denomination. As an illustration, the Eagle, from 1838 onward, contained .48375 troy ounces of gold, at a time when the price of gold was fixed at $20.67 per troy ounce. This yields essentially $10 of gold in the coin. There was no concern about the cost to produce such a coin.
As a further illustration, silver coinage had it’s weight vary during the 19th century, and changes were denoted by the placing of arrows at the date signifying the change in the content of silver. Again, the amount was equal to the value of the precious metal the coin contained.
It has only been since the removal of precious metals from our coins that coins are produced at a profit to the government.
Cost was a concern when the intrinsic value exceeded the face value; an early example was the elimination of the large cents, which contained more than one cent’s worth of copper.
So, had a bill such as this been proposed back then, we would not have coinage as we know it today.

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